NAFTA thoughts.
Trump's talks on NAFTA indicate he is either absolutely brainless, or tied to the kind of tactics which work on a small scale business, but not on a global scale.
Firstly, Trump doesn't need to scrap NAFTA, Canada or Mexico could as well. But ultimately, the only party seemingly interested in that avenue is the US. But, he likely won't get what he wants. There is a simple theoretical reason... neither Canada or Mexico have any reason to enter into any trade agreement which would leave them worse off than they would be without one.
I'm not sure what that looks like for Mexico, but if the US exits NAFTA, for Canada that means reverting back to older trade policies, which, while not as good as NAFTA aren't as bad as no trade agreement at all. So, Canada's willingness to wiggle is probably nowhere near as great as Trump would like. Which is why, while Canada is quite silent on this topic broadly, they have been very willing to speak to a refusal to things like dropping the independent tribunal clause which has protected Canada (to a minor extent) from predatory US practices in the lumber industry.
But, none of this is reason to call Trump brainless.
THAT reason is what happens to the countries in NAFTA if Trump succeeds. We all fail. But none fail harder than the US.
In typical business, holding a monopoly is great. Especially, the longer you can go without regulating authorities ascribing that title to you. The more of a monopoly you have, the more you can demand for your own product. It is great. For the monopoly holder. Aiming for a monopoly in business has the same risks and limitations it does on a global scale. Just that victims are different.
Let's say I get away with a monopoly on smartphones. Generally, it is pretty safe to assume this is a great thing for me. The victims in this case are the consumers. My monopoly does little to impact their daily lives. As long as they can afford (either actually afford, or via financing, or whatever) to buy my phones my monopoly chugs along. And, frankly, as long as enough consumers can afford enough to pay me enough to make a profit, there is theoretically no reason I ever need to stop. And, bonus, it is great news for my employees as well.
This sounds like the frame of mind Trump is in.
There are however a few seriously different problems with international trade agreements. Firstly, even simple trade rules can affect all businesses in multiple industries. This would be great for the monopoly holder, were it not for the simple fact that you need these people to buy back a portion of what you're selling and you frequently need to buy stuff off of them as well. Both sides of that are where Trump's rhetoric is glaringly negligent.
A theoretical trade agreement that heavily favors the US (which, as I said above, won't come to pass because Mexico and Canada seem to have some concept of reality) would eventually DESTROY the economies of Mexico and Canada (assuming they don't find new trade elsewhere, which creates a whole different slew of problems for Trump, maybe I'll talk to that later). This would mean that Canadian's and Mexican's would no longer be able to afford US made goods, even if they wanted them.
Back to the smartphone parallel... it is like having a monopoly on cell phones, but no one who can buy them. It doesn't matter that you control the market. Your business will eventually die. It isn't a perfect parallel. In theory, the US market will just shrink. because since everything would be priced relative to American incomes, American's would still be able to buy. But international sales would fall off a cliff. And many American's would lose their jobs. Really, it would be a slow death spiral.
But that isn't the worst of it. Not only would external countries not be able to afford to buy American. As Canada and Mexico's economies collapse and their currency plummet in value, even insane tariffs won't stop American's from buying cross border. So even more jobs and money will flow across the borders. Oops! You did it again. Basically, Canada and Mexico would become China 2.0. Only, there would be no major oceans between us to slow down the tide of cheap goods.
Back to that side note about Canada and Mexico going elsewhere... this should be an even bigger concern. You see, Canada and Mexico combined make up an ABSURD percentage of American exports. And for simple reasons. We are geographically connected by land. So, not only can goods be sent and received in the cheapest and easiest fashion possible. We are also, incidentally, the easiest places to fly or haul goods to and from. Tariffs or no, proximity is a huge convenience and plays a very large part in why our trade is so heavily connected.
BUT... throw in predatory trade practices and Canada and Mexico will be forced to search elsewhere. We will slowly but surely decrease our imports from the US and through progressive trade agreements, buy our goods elsewhere. Meanwhile, for as long as our currency remains low in value, we will continue to sell to the US.
In simplest terms... the best trade practices are the ones which don't favor any party. Really, what the US SHOULD want is for a system without tariffs and which encourages partner countries to grow their economies to match their own. Why? People are nationalists to a degree without any provocation. Walk into a local shop tomorrow and ask "If you could get the same product, and for the same price, but one came from your country and one was imported, which would you buy?". I'll wager a disproportionately large number of people will choose to support their own country, community etc...
Similar experiment, if you own a shop, let's say a produce stand... ask your customers tomorrow, "if you could buy a basket of corn for $5 USD that came from down the street, or $5 USD for one which
was imported?". Again, I'll wager similar outcomes. It is when there is disparity in the cost of goods that you start getting a shift away from that. If local and imported both cost relatively the same, people would generally only buy imported when the local supply runs out.
Also, by growing both economies mutually, you are helping to ensure that when your trade partners run out of a resource that they are also financially able to afford to continue buying from you.
That isn't really the system we live in though. But the general concept remains the same. Modern trade agreements are tantamount to a series of things like: "OK, we will give you an edge in this industry for these concessions which may hurt that industry on your end". It creates countries which are specialists in certain areas.
This is important to note because it means that there is a kernel of truth to Trump's rhetoric. And also that there is certainly value in renegotiating on something of a regular basis. The kernel of truth is that there are definitely industries being suppressed by NAFTA. What he is ignoring is that it is by design and that inequity exists in favor of the US in other sectors as well. Whether or not it amounts to a zero sum game is another story.
At the end of the day, just blindly insisting that things change and all changes favor the US is more than likely to result in NAFTA imploding. Which, long term, will more than likely mean economic damage to all countries involved. But, as long as Trump or someone with his ideals remain at the helm of the US, they will slip further and further into obscurity.
Firstly, Trump doesn't need to scrap NAFTA, Canada or Mexico could as well. But ultimately, the only party seemingly interested in that avenue is the US. But, he likely won't get what he wants. There is a simple theoretical reason... neither Canada or Mexico have any reason to enter into any trade agreement which would leave them worse off than they would be without one.
I'm not sure what that looks like for Mexico, but if the US exits NAFTA, for Canada that means reverting back to older trade policies, which, while not as good as NAFTA aren't as bad as no trade agreement at all. So, Canada's willingness to wiggle is probably nowhere near as great as Trump would like. Which is why, while Canada is quite silent on this topic broadly, they have been very willing to speak to a refusal to things like dropping the independent tribunal clause which has protected Canada (to a minor extent) from predatory US practices in the lumber industry.
But, none of this is reason to call Trump brainless.
THAT reason is what happens to the countries in NAFTA if Trump succeeds. We all fail. But none fail harder than the US.
In typical business, holding a monopoly is great. Especially, the longer you can go without regulating authorities ascribing that title to you. The more of a monopoly you have, the more you can demand for your own product. It is great. For the monopoly holder. Aiming for a monopoly in business has the same risks and limitations it does on a global scale. Just that victims are different.
Let's say I get away with a monopoly on smartphones. Generally, it is pretty safe to assume this is a great thing for me. The victims in this case are the consumers. My monopoly does little to impact their daily lives. As long as they can afford (either actually afford, or via financing, or whatever) to buy my phones my monopoly chugs along. And, frankly, as long as enough consumers can afford enough to pay me enough to make a profit, there is theoretically no reason I ever need to stop. And, bonus, it is great news for my employees as well.
This sounds like the frame of mind Trump is in.
There are however a few seriously different problems with international trade agreements. Firstly, even simple trade rules can affect all businesses in multiple industries. This would be great for the monopoly holder, were it not for the simple fact that you need these people to buy back a portion of what you're selling and you frequently need to buy stuff off of them as well. Both sides of that are where Trump's rhetoric is glaringly negligent.
A theoretical trade agreement that heavily favors the US (which, as I said above, won't come to pass because Mexico and Canada seem to have some concept of reality) would eventually DESTROY the economies of Mexico and Canada (assuming they don't find new trade elsewhere, which creates a whole different slew of problems for Trump, maybe I'll talk to that later). This would mean that Canadian's and Mexican's would no longer be able to afford US made goods, even if they wanted them.
Back to the smartphone parallel... it is like having a monopoly on cell phones, but no one who can buy them. It doesn't matter that you control the market. Your business will eventually die. It isn't a perfect parallel. In theory, the US market will just shrink. because since everything would be priced relative to American incomes, American's would still be able to buy. But international sales would fall off a cliff. And many American's would lose their jobs. Really, it would be a slow death spiral.
But that isn't the worst of it. Not only would external countries not be able to afford to buy American. As Canada and Mexico's economies collapse and their currency plummet in value, even insane tariffs won't stop American's from buying cross border. So even more jobs and money will flow across the borders. Oops! You did it again. Basically, Canada and Mexico would become China 2.0. Only, there would be no major oceans between us to slow down the tide of cheap goods.
Back to that side note about Canada and Mexico going elsewhere... this should be an even bigger concern. You see, Canada and Mexico combined make up an ABSURD percentage of American exports. And for simple reasons. We are geographically connected by land. So, not only can goods be sent and received in the cheapest and easiest fashion possible. We are also, incidentally, the easiest places to fly or haul goods to and from. Tariffs or no, proximity is a huge convenience and plays a very large part in why our trade is so heavily connected.
BUT... throw in predatory trade practices and Canada and Mexico will be forced to search elsewhere. We will slowly but surely decrease our imports from the US and through progressive trade agreements, buy our goods elsewhere. Meanwhile, for as long as our currency remains low in value, we will continue to sell to the US.
In simplest terms... the best trade practices are the ones which don't favor any party. Really, what the US SHOULD want is for a system without tariffs and which encourages partner countries to grow their economies to match their own. Why? People are nationalists to a degree without any provocation. Walk into a local shop tomorrow and ask "If you could get the same product, and for the same price, but one came from your country and one was imported, which would you buy?". I'll wager a disproportionately large number of people will choose to support their own country, community etc...
Similar experiment, if you own a shop, let's say a produce stand... ask your customers tomorrow, "if you could buy a basket of corn for $5 USD that came from down the street, or $5 USD for one which
was imported?". Again, I'll wager similar outcomes. It is when there is disparity in the cost of goods that you start getting a shift away from that. If local and imported both cost relatively the same, people would generally only buy imported when the local supply runs out.
Also, by growing both economies mutually, you are helping to ensure that when your trade partners run out of a resource that they are also financially able to afford to continue buying from you.
That isn't really the system we live in though. But the general concept remains the same. Modern trade agreements are tantamount to a series of things like: "OK, we will give you an edge in this industry for these concessions which may hurt that industry on your end". It creates countries which are specialists in certain areas.
This is important to note because it means that there is a kernel of truth to Trump's rhetoric. And also that there is certainly value in renegotiating on something of a regular basis. The kernel of truth is that there are definitely industries being suppressed by NAFTA. What he is ignoring is that it is by design and that inequity exists in favor of the US in other sectors as well. Whether or not it amounts to a zero sum game is another story.
At the end of the day, just blindly insisting that things change and all changes favor the US is more than likely to result in NAFTA imploding. Which, long term, will more than likely mean economic damage to all countries involved. But, as long as Trump or someone with his ideals remain at the helm of the US, they will slip further and further into obscurity.
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